The long wait: should first-time buyers stay put a little longer
With affordable rents, low interest rates and property prices down nationwide, first-time buyers must feel they have held out long enough. But stay put a little longer, urges John Cradden
AFTER months and months of falling, rental prices are showing some signs of stabilising, according to the most recent report by rental and property website Daft.ie.
Rents fell by just under half a per cent on average over the first quarter of this year. Prices had actually risen in January but fell back slightly over the following three months.
The average monthly rent nationwide now stands at just under €760.
So while it's still a renter's market, the moderation in the fall in rents does offer some hint that property prices might also stabilise soon.
"First-time buyers may regard stabilising rents as a signal about the health of the property market and the economy more generally," said Ronan Lyons, economist at Daft.ie.
"Rising rents may push them to start looking at homes to buy," he added.
Information on rents also helps determine what price an investor would pay for a property, and so the extent to which rents stabilise can provide a good indication of how far prices might fall.
"Therefore, we may see rents levelling off before house prices," said Mr Lyons.
With interest rates continuing to stay low and property prices in many parts of the country reduced by up to 50pc, many potential first-time buyers are wondering if they have held out long enough.
However, there won't be a rush of first-time buyers this year as many are still paying a lot less on accommodation per month than they would on a mortgage, and house prices are still edging down, said Mr Lyons.
"Nonetheless, there is evidence that properties are moving when the price is right, particularly in Dublin."
The choice to buy or continue renting depends on getting mortgage approval and having the large deposit that all lenders now insist on. According to mortgage experts, how much of a deposit on a house costing €200,000 you need depends on which lender you go to, but there's not a lot of choice.
Some banks, such as AIB, will offer a 92pc loan-to-value (LTV) mortgage, for which you will need at least a €16,000 deposit.
Others, such as Irish Nationwide, ICS and Permanent TSB, will only offer a 90pc LTV, which means a €20,000-plus deposit.
Patricia Foskin, a Waterford-based mortgage broker and owner of consumer website Moneysavers.ie, says banks are frequently changing their lending criteria without informing many brokers.
She said a first-time buyer customer of hers was refused a mortgage of €150,000 despite a salary of around €40,000, zero debt and a total savings fund of €35,000.
The lender in question told Ms Foskin that her customer failed a repayment "stress" test.
To do this the bank asked whether the customer could repay at a higher-than-normal rate of 5pc (rather than the current rate of 4pc) over a period of six months.
Certainly, one significant change in lending practices is that it may not be enough anymore just to have a deposit accumulated by whatever means.
"Unlike some years ago, when it was quite acceptable to have no savings and raise your deposit from the bank of mam and dad, all lenders now want to see some, if not of all, of the deposit actually accumulated and saved by the borrower," says Liam Ferguson, of financial advisers Ferguson and Associates.
"If your income doesn't stretch to saving regularly, as well as paying your living expenses, you may find it's a long time until you can buy your own place," he added.
Karl Deeter, of Irish Mortgage Brokers, says banks are attempting to drive business direct and reduce customer choice through higher rates, higher stress tests and lower LTVs.
"Of the people who actually want to buy, there are about 40pc being turned away," he said.
"Eventually this will turn into pent-up demand for credit as supply of property is still plentiful, and the bank response will be to lend freely but at much higher margins," said Mr Deeter.
In the meantime, Ireland does not appear to have become a nation of renters, but the rent vs buying debate has clearly become more even-handed.
"There are buyers who could easily afford a property who are opting to rent long term, but there is a shift under way in which people are losing the Irish guilt about renting," says Mr Deeter.
On the other hand, it is expected that renting will remain a short or medium-term option for most Irish people.
"I would speculate that uncertainty about job security and the possibility of future price drops would feature more strongly in a first-time buyer's decision to defer purchasing than the whole 'rent vs buy' debate," said Mr Ferguson.